The chances of a breakdown between Greece and its creditors are small, as neither of the two sides is willing to risk the breakup of the euro area, Greece’s administrative reform minister said.
“I estimate that the chances of rift are only 10 percent, as I have faith that reason will prevail,” George Katrougalos, 52, said in a telephone interview from Athens on Tuesday. “We are in a trajectory heading towards agreement for the simple reason that neither of the two sides wants a rift.”
Europe’s most indebted state is locked in talks with its creditors over the terms attached to its 240 billion-euro bailout ($269 billion). Uncertainty over the country’s future in the euro area has triggered a liquidity squeeze, which pulled the economy back into a double-dip recession.
“We have moved from Grexit to Grimbo, as Greece is in limbo,” said Katrougalos, who is also a professor of public law. “This liquidity crunch, which is caused by the European Central Bank not adhering to its responsibilities, doesn’t allow the Greek economy to grow.”
Without access to capital markets, Greek lenders are bleeding deposits and relying on 80 billion euros of Emergency Liquidity Assistance, extended by the country’s central bank, to stay afloat. The European Central Bank, which can block the ELA provision, has so far resisted the Greek government’s demands to allow Greek lenders to buy more treasury bills, as the use of central bank funds to finance the state would go against EU treaties.
Sorbonne-educated Katrougalos said the ECB’s stance and the refusal of euro-area member states to disburse bailout funds are tactics creditors are using to force the Greek government to capitulate to their demands.
“I’m sorry to say that this huge cost for the economy is the basic negotiating weapon of the other side,” the minister said. “They bring time limits to reach a deal to the brink, as a negotiating tactic. This is not proper behavior among partners.”
Despite the lengthy negotiations, the minister believes a compromise will be reached. “Only if the logic in the back of the minds of some of our peers -- which says that a government of the left shouldn’t be allowed to succeed -- only then we will not reach an agreement,” he said.
Greece’s prime-minister Alexis Tsipras has said the Greek people may be asked to decide on whether to accept an agreement that would contradict the government’s mandate to end austerity. According to Katrougalos, that’s not the baseline scenario at this stage. Voters would only have to vote “if creditors give us an ultimatum beyond the limits of a fair compromise, a take it or leave it deal,” he said.
If a referendum is called, Tsipras’s government would campaign against any agreement that would be seen as an ultimatum, even if that could lead to an exit from the euro area, he said, adding that “you have to be ready for a rupture in any negotiation.”
Asked on the timeframe for bailout talks, Katrougalos said that “by the end of May, we ll know how things will play out.”